Kraft Foods reports Q4 net earnings of US$931M, compared to year-ago earnings of US$90M, as net revenues rise 2.3% to US$4.6B
February 13, 2014
– - Q4 Net Revenues grew 2.3% and Organic Net Revenues(1) were up 3.2%
- 2013 EPS of $4.51 included $1.67 of gains from market-based impacts to post-employment benefit plans(2)
- 2013 Free Cash Flow(3) of $1.5 billion exceeded company expectations
Kraft Foods Group, Inc. (NASDAQ: KRFT) today reported fourth quarter and full year results that reflected strong gains from operations.
"We made significant strides during our first full year as a public company," said Kraft CEO Tony Vernon. "Our focus on driving profitable growth while reinvesting in our brands and people has delivered solid results to date and will serve us well as we continue to remake Kraft into the best food and beverage company in North America."
2013 FINANCIAL SUMMARY
Net revenues grew 2.3 percent in Q4 and declined 0.3 percent to $18.2 billion in 2013.
Fourth quarter Organic Net Revenues were up 3.2 percent driven by volume/mix gains of 4.0 percentage points that were partially offset by a negative 0.8 percentage point impact from lower pricing that primarily reflected lower costs for ingredients such as raw nuts and coffee beans.
Volume/mix gains reflected base business growth as well as a favorable impact of approximately 3 percentage points from comparisons with retail customer inventory reductions following the 2012 spin-off from Mondelēz International. These gains were partially offset by approximately 1 percentage point from product line pruning.
Full year Organic Net Revenues were flat versus the prior year. Volume/mix gains from base business growth were offset by product line pruning of approximately 1 percentage point and a 0.6 percentage point impact from lower pricing.
Operating income was $1.5 billion in Q4 and was up 71.9 percent to $4.6 billion in 2013.
Fourth quarter operating income included a $782 million benefit from market-based impacts to post-employment benefit plans primarily driven by higher discount rates and higher asset returns.
Excluding the market-based impacts to post-employment benefit plans, operating income increased more than 50 percent from a combination of lower spending on cost savings initiatives,4 volume/mix gains, favorable marketing costs related to program timing and productivity savings.
Full year operating income included a $1,561 million benefit from market-based impacts to post-employment benefit plans.
Excluding this benefit, operating income was up approximately 5 percent versus the prior year, despite the incremental costs of becoming a standalone public company. Significant overhead cost savings as well as gains from productivity and volume/mix more than offset a negative impact from pricing net of commodity costs and a double-digit increase in advertising.
Earnings per share were $1.54 in Q4 and $4.51 in 2013.
Fourth quarter EPS increased $1.39, including a $1.11 benefit from market-based impacts to post-employment benefit plans. EPS growth was also driven by gains from operations, lower spending on cost savings initiatives and a favorable change in unrealized gains/losses from hedging activities.
Full year EPS increased $1.76, including a $1.90 benefit from market-based impacts to post-employment benefit plans. Excluding this benefit, lower EPS versus the prior year was driven by strong gains from operations that were more than offset by higher interest expense. The higher interest expense in 2013 reflected a full year of Kraft's capital structure as an independent company.
Free Cash Flow was $1.5 billion in 2013.
Free Cash Flow reflected improved management of inventory and payables as well as the impact of approximately $600 million in pension plan contributions.
FOURTH QUARTER BUSINESS SEGMENT HIGHLIGHTS
Strong organic growth was driven by comparisons with spin-related retail inventory reductions in the prior year as well as successful innovations in on-demand coffee. These gains more than offset the impact of lower pricing that mainly reflected lower green coffee costs.
Operating income was up sharply due to manufacturing productivity, lower spending on cost savings initiatives, improved pricing net of commodity costs and lower marketing costs due to program timing.
Organic Net Revenues were slightly lower as the negative impacts of pricing and a voluntary product recall in string cheese more than offset ongoing growth in Kraft and Cracker Barrel natural cheeses as well as Philadelphia cream cheese.
Operating income growth versus the prior year was driven by lower spending on cost savings initiatives and lower marketing spending that more than offset a negative impact from pricing net of commodity costs and costs related to a voluntary product recall.
Strong Organic Net Revenue growth was driven by a combination of the comparison with spin-related retail inventory reductions in the prior year quarter, gains from innovation in Oscar Mayer cold cuts and Lunchables as well as higher prices in bacon.
A double-digit gain in operating income was primarily due to lower spending on cost savings initiatives versus the prior year. Excluding this factor, improved volume/mix and lower marketing costs due to program timing were mainly offset by unfavorable manufacturing costs.
Meals & Desserts:
Strong Organic Net Revenue growth was driven by net pricing gains that mainly reflected lower promotional activity versus the prior year.
Operating income growth reflected a combination of favorable pricing net of commodity costs versus the prior year, improved productivity and lower spending on cost savings initiatives.
These gains were partially offset by increased investments in advertising.
Enhancers & Snack Nuts:
Organic Net Revenue growth reflected favorable comparisons with spin-related retail inventory reductions in the prior year and gains in Planters snack nuts. These gains were significantly offset by lower prices that reflected lower nut costs and increased merchandising activity behind Miracle Whip versus the prior year quarter.
A double-digit increase in operating income was driven by productivity gains and improved volume/mix.
Strong Organic Net Revenue growth was driven by a combination of favorable comparisons with spin-related retail inventory reductions in the prior year and significant volume/mix gains in cheese and Tassimo coffees. Lower pricing primarily reflected lower input costs in nuts.
Strong double-digit operating income growth reflected improved volume/mix and overhead cost savings.
Organic Net Revenue growth was driven by price increases in Foodservice and Exports. Volume/mix gains in Exports were more than offset by planned business exits in Foodservice.
Strong double-digit growth in operating income was largely due to favorable pricing net of commodity costs versus the prior year.
Kraft will host a conference call to discuss its fourth quarter and full year 2013 results today at 4 p.m. Central time.
The call will be hosted by:
Tony Vernon, CEO
Teri List-Stoll, EVP and CFO
Chris Jakubik, VP, Investor Relations
Live Event Dial-in Details:
United States Dial-In: 1-888-350-0137
International Dial-In: 1-970-315-0478
Access code: 35485215
To ensure timely access, participants should dial in approximately 10 minutes before the call starts. A listen-only webcast with the accompanying presentation will be available in the Investor Center section of Kraft's Web site at http://ir.kraftfoodsgroup.com, under "Events and Webcasts."
A replay of the conference call will be available until Feb. 26, 2014, by calling 855-859-2056 from the United States and Canada or 404-537-3406 from other locations. The access code for the replay is 35485215. An archive of the webcast will be available for one year following the conference call on Kraft's Web site.
ABOUT KRAFT FOODS GROUP
Kraft Foods Group, Inc. (NASDAQ: KRFT) is one of North America's largest consumer packaged food and beverage companies, with annual revenues of more than $18 billion. The company has an unrivaled portfolio of products in the beverages, cheese, refrigerated meals and grocery categories. Its iconic brands include Kraft, Maxwell House, Oscar Mayer, Philadelphia, Planters, Velveeta, Capri Sun, Lunchables and JELL-O. Kraft's 23,000 employees in the United States and Canada have a passion for making the foods and beverages people love. Kraft is a member of the Standard & Poor's 500 and the NASDAQ-100 indices. For more information, visit www.kraftfoodsgroup.com and www.facebook.com/kraft.
Industry Intelligence editor's note: In an omitted table, the company reported fourth-quarter 2013 net income of US$931 million and revenue of $4.6 billion compared to fourth-quarter 2012 net income of $90 million and revenue of $4.49 billion.